According to the March 2017 NAB Online Retail Sales Index, Australians spent around $22.23 billion during the previous year on online retail sales, equal to about 7.3% of traditional bricks and mortar retail sales, prompting a boom in parcel delivery volumes.
Local retailers are also increasingly under pressure from large global chains. According to Deloitte's 20th Global Powers of Retailing report, 39 of the top 250 global retailers now trade in Australia, with US-based retailers comprising almost 50 per cent of the top 250 Australian retailers currently operating in Australia.
Home grown players will also soon compete with US retailer Amazon, set to arrive in Australia during 2018. This business has an arm, Amazon Prime Air, which in the US delivers small packages using drones – in 30 minutes or less.
There is no word on when or whether the service will be available in Australia. However, this could pose a major competitive threat to other Australian retailers if this service is rolled out.
New market entrants and online shopping are not the only dynamics changing the nature of supply chains. Technology is also transforming the way the transport sector operates helping businesses to keep up with growing consumer demand for online shopping.
As Michael Kilgariff, the Australian Logistics Council's Managing Director told the most recent Online Retail Logistics Conference, “autonomous vehicles, new safety technologies and GPS advances are just some of the developments we are progressing as an industry."
Mobile technologies, real-time route planning and intelligent handling solutions are other innovations helping to transform the local supply chain.
According to Kilgariff, demand for same-day delivery is on the rise, fuelled by growth in online shopping.
“People can effectively buy with one click – and because that happens so quickly, there's a complementary assumption that the delivery experience will be just as rapid and just as seamless," says Kilgariff.
“But just because people want something doesn't mean it will happen. Moving freight is a complex business. Our existing freight infrastructure and regulatory regimes aren't necessarily equipped to deal with increasing consumer demand for same-day deliveries," he adds.
So what does this mean for Australia's Chief Financial Officers and how can they ensure they are configuring their supply chain so that it's optimised to meet consumer needs?
Delivery models must be viable
Cate Hull, Co-Founder of logistics platform FreightExchange is someone who knows all about this. Her business uses a peer-to-peer business model similar to that of AirBnB and Uber, but applied to the transport sector.
It is an online portal with two parts. Customers can ship goods through it. Additionally, freight companies can list any spare capacity they have on the site so that their containers are full before they leave the depot, station or port.
FreightExchange's services result in less wasted space on transport routes and a more efficient supply chain.
Hull has a particular view of the future of Australia's supply chain. “It's important for CFOs to think this through because there's a lot of hype in this space and often no business imperative to back it up," she explains.
The down-side is that while consumers and businesses may want to receive their goods on the same day they order them, in many cases, there is a limit to how much people will pay for that privilege.
“It's really expensive to deliver on demand in Australia; the economies of scale make it incredibly challenging. In big cities it can work, but many businesses have not been able to make it work for them," Hull says.
Testament to this is the number of local online businesses that have struggled. The latest casualty is online leisure e-tailer SurfStitch, which is under administration.
A key message for CFOs when forming their views on how to re-engineer their supply chain: make sure the delivery model makes financial sense for the business.
On-demand delivery trends
Despite the challenges of the approach, more businesses are considering how to provide services on-demand with changes happening in the business-to-consumer and business-to-business space.
For instance, Hull says more businesses are reconfiguring their physical space so that there's room to pull and pack orders made online. They are often rethinking their labour force, using existing staff to fulfil orders to ensure wage costs are not climbing.
This can work well when the business has a network of physical stores around Australia and can use their local presence as the delivery hub.
This is a cost-effective approach that allows companies to use their existing resources more effectively and is one way to make the business model work. It also helps to avoid delivery drivers covering huge routes all over a city, instead centralising deliveries to local areas.
While consumers have come to expect same-day delivery for goods such as groceries, for many businesses, there is often little expectation their orders will be received on the same day they are sent.
For example, tradespeople – plumbers, builders, mechanics – constantly need to source small parts and have them delivered quickly.
New business models could emerge so they can receive parts and supplies quickly – no matter if they are working at their business premises, a customer's office or somewhere else.
“Hours of driving just to deliver a $3 part will never make financial sense," Hull notes.
It's also worth noting that not all sectors expect same-day delivery. In some industries, it's acceptable for orders to be delivered in days or weeks.
In general, the smaller and cheaper the item, the higher the expectation it will be delivered immediately.
CFOs who keep a watching brief on innovations in logistics during this time of exponential change in transport, could be ahead of the game when choosing the best new models and technology for their company's logistics solutions.
Kilgariff says demand for fast delivery will impact all sectors, although it's probably most obvious in retail and FMCG, and CFOs need to be ready.
“Technology has a far greater role to play in promoting supply chain efficiency and safety. Businesses that want to be ahead of the curve should be investing in telematics and systems that improve supply chain visibility," he says.
- Online sales have prompted growing pressure for on-demand deliveries.
- The arrival of Amazon in Australia is likely to increase consumer expectations for fast deliveries.
- New business-to-business models are emerging that speed up delivery times and make the logistics sector more efficient.